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Author: Nigel Cook
The case arose because of a purported appointment of administrators following the filing of a notice of intention (NOI) by the directors (which had to be given to the floating chargeholder) but immediately after a winding up petition had been filed by the judgement creditors who also opposed this application. This appointment was invalid because of para 25 of Schedule B1.
The further complication was that the appointment followed a damning judgment by the Technology and Construction Court (TCC) which, despite the filing of the NOI, had allowed the claimants (now respondents) to continue the proceedings despite the interim moratorium created by the NOI. The TCC did not rule on validity of the NOI, but it made remarks which threw doubt on the genuineness of the insolvent state of the company and viewed the directors’ actions in a negative light. It should be noted that the TCC gave its judgment in ignorance of the plaintiff’s filing of the winding up petition – hardly a ringing endorsement of the plaintiff’s duty to provide full facts to the court!
The directors’ application was opposed by the judgment creditor on a number of grounds, including that the evidence of insolvency was unsatisfactory and that the court should exercise its discretion against the applicants because of their unmeritorious conduct, namely using the moratorium to avoid paying a due debt and divert the course of justice. Nevertheless, the directors proceeded with their appointment.
The application came before the Companies Court three months after the invalid appointment but after the administrators had begun work on realisation of assets for the benefit of creditors, although their proposals say they will seek first to achieve a rescue. The company owns a substantial freehold asset, namely a football ground and infrastructure.
The court granted the retrospective administration order for the same administrators, giving, amongst its reasons, that it accepted that there was credible evidence of insolvency even though intercompany debts were involved. It also addressed the discretion point and noted that the TCC may not have been fully informed of the background (as noted above) and, of course, the winding up would not proceed. The court also rejected, as a reason for refusing its discretion, the possibility that assets might be sold to parties connected to the directors. The court was happy that the administrators would follow the necessary professional practices.
The decision does at least confirm that under no circumstances will an out of court appointment be valid, even if the directors were unaware of the filing of a winding up petition. In practice, of course, a search of the Petitions Register can be carried out immediately before the appointment.
Otherwise this might be seen as an exercise of the court’s discretion in a pragmatic way in promoting the administration process for the benefit of all creditors but it contrasts with BW ESTATES, where discretion was not exercised in favour of long-standing administrators.